Court U/S 11 Of Arbitration Act Only Checks For Existence Of Agreement, Jurisdictional Questions To Be Decided By Arbitrator: Telangana HC

Brief Facts

This application is filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the A&C Act”) seeking appointment of an Arbitral Tribunal to adjudicate the claims and disputes between the parties.

Parties have entered into a purchase order and a service order on 04.11.2016. Clauses 15 and 19 of the purchase order and service order respectively contains an arbitration clause.

The applicant had filed an application on 02.03.2020 under the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as “2006 Act”). The Council by an order dated 24.04.2023 dismissed the claim of the applicant on the ground that the same is not covered under the 2006 Act. The applicant thereafter issued a notice under Section 21 of the A&C Act on 15.10.2023 invoking the arbitration clause. The respondent submitted a reply to the aforesaid notice on 08.12.2023. Thereafter, this application has been filed on 16.07.2024.

Contentions

The Applicant submitted that the purchase order and the service order contain arbitration clause and the dispute has arisen between the parties which is required to be resolved in the manner agreed to by the parties.

1. That the applicant is entitled to the benefit contained under Section 14 of the Limitation Act, 1963 as the applicant is bona fide in prosecuting the proceedings under the 2006 Act. In support of the aforesaid submission, reliance has been placed on the decision of the Delhi High Court dated 10.04.2024 in Arbitration Petition No.13 of 2024 (M/s. Advance Stimul vs. Gail (India) Limited).

Per contra, the respondent submitted that in order to claim the benefit of Section 14 of the Limitation Act, 1963, the prior proceeding initiated has to be prosecuted with due diligence.

2. That the applicant has failed to establish that the proceedings under the 2006 Act were being prosecuted with due diligence. Therefore, the applicant is not entitled to the benefit of Section 14 of the Limitation Act, 1963, and the claim of the applicant is barred by limitation.
3. That the claim of the applicant is not covered under the arbitration clause, namely, clauses 15 and 19 of the purchase order and the service order respectively. Reliance was placed the decision of the Supreme Court in Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department and others (2008).

Court's Analysis

The court at the outset referred to section 11 of the Arbitration Act and observed that in a proceeding under Section 11(6) of the A&C Act, this Court has to satisfy itself whether underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties.

The court further referred to the Supreme Court judgment in Bharat Sanchar Nigam Limited vs. Nortel Networks India Private Limited (2021) wherein it was observed that the issue of limitation which concerns the “admissibility” of the claim, must be decided by the Arbitral Tribunal either as a preliminary issue, or at the final stage after evidence is led by the parties.

The court further observed that it is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is nonarbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.

The court further referred to another judgment of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Limited vs. Northern Coal Field Limited (2020) wherein it was held that the doctrine of kompetenz-kompetenz is intended to minimize judicial intervention, so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by one of the parties. It was further held that Section 16 of the Arbitration Act is an inclusive provision of very wide ambit.

Based on the above, the court observed that the claim of the applicant cannot be said to be ex facie time barred. The issue whether or not the applicant is entitled to claim the benefit of Section 14 of the Limitation Act, 1963, in the facts and circumstances of the case is a debatable issue which requires to be adjudicated by the Arbitral Tribunal.

Accordingly, the present application was allowed.

Case Title: M/s K.D. SOLAR SYSTEMS v. M/s. Mytrah Energy India Pvt. Ltd.

Citation : ARBITRATION APPLICATION No.176 of 2024

Judgment Date: 25/10/2024

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